The battle of retailers vs manufacturers

As a retailer, I generally won’t do business with manufacturers who will sell directly to the end user. I have no reason to -there are too many other companies out there from whom I can buy my product. The last company I dropped not only sold to one of my customers at a discount but also told them what my wholesale price was! Makes you wonder who’s in charge, doesn’t it?

Another person added:

too bad you have that attitude. You probably have missed a lot of sales by not carrying some great lines because of your fear. A LOT of my stores have GAINED customers because I send them their way through my site…If you have a good relationship with your vendors, then the trust issue shouldn’t even be an “issue”.

As I responded to these comments, I realized that a very important issue was brought to light that warranted an entire post. First of all, I have much more experience as a retailer than as a DE and because of that, I have a frame of reference that might be different than what many readers here have. To qualify that even more, most of my industry dealings are in what is considered contemporary apparel. So if you’re like Kathleen and you have experience in western wear, or another niche, I can’t relate as much and my experience may differ vastly.

To start off, I want to say that retail is a tough business made more difficult by the management of cash flow. Retailers are always trying to find merchandise with a high sell through that they can turn frequently to get the most out of their cash. Profit margins are also a very sensitive issue because retailers are already dealing with an average gross profit margin of 50-54% for apparel, which becomes even lower if markdowns are necessary. Considering that there is a percentage of merchandise that just doesn’t move at all, retailers are really dealing with a lower average gross profit margin than even that.

The concerns of most retailers still boil down to turnover and profit margin, those two are key. A retailer must resell what they’ve bought in order buy more stuff and make a profit for themselves. If you’re a retailer with great products, that’s great but turnover and profit margin are the most important. If your product merchandises well, that’s great too but turnover and profit margin are still the key. Even the concerns of cosmetics retailers (who usually have the highest margins) often boil down to turning their inventory faster and taking fewer markdowns. So, when this first comment was posted:

there are too many other companies out there from whom I can buy my product

I could immediately relate. I have never known an established retailer who didn’t have more than enough product lines to choose from to put in their store. What’s more, it’s usually the case that there are more lines and more great items within a line, than a retailer can afford to stock. Retailers have a lot of choices and buyers have to buy carefully and selectively because in most markets, there is no shortage of great merchandise.

I have a few DE friends and we’ve discussed why a store turned down their line or the objections they get and more often than not, the objection is “I can get a similar product from XYZ and they also _____”. The other company has similar products but also some kind of advantage that is preferable to the retailer.As a DE, you will definitely need some kind of advantage over another brand that will get you the buyer’s order.

The retailer’s advantage that you’ll have to deal with is that unless you’re an “it” brand -one they must have because the sell-through is incredible, it gets a lot of press, it sells itself, or some other reason- they have many options to chose from. So when I see a response like this:

too bad you have that attitude. You probably have missed a lot of sales by not carrying some great lines because of your fear.

My thinking is maybe, maybe not. No retailer has an unlimited amount of open to buy dollars. Thus the retailer is always choosing between this or that. Because of this, the only way a retailer is losing sales by not picking up a brand is if they buy a brand that doesn’t sell as well instead.

The feedback that I get from many of my DE friends is that their savvy buyers are always questioning what they are doing to market their brand. Are they getting any press, do they have fashion shows or trunk shows, what is the DE doing to get their brand out there and make it desirable to the consumer. Sure the retailer has to do some legwork but because most retailers usually have their “cash cows” and they can’t focus their marketing efforts on every single brand. If your brand doesn’t move, it may not get picked up again for the next season no matter how much the buyer personally loves it and how great of a product you really have. This is one of the reasons I know that retailers who put some focus into retail merchandising and promotion often do better than those who don’t merchandise and promote.

For example Sephora -the large cosmetics retailer- will require a brand to focus on getting publicity or they will not keep the line. Not only do they focus on getting publicity but they limit their promotions to a certain caliber of publications. Sephora is a large national chain so that may not be relevant to you but smaller retailers have their own way of accomplishing the same result.

Now if you’re a DE who feels like a retailer is missing out by not buying your line, you better have a high sell-through to back it up. If you have a great product but it moves slowly, the retailer’s dollar is tied up in it (low turnover) so you’re missing the point. One of the challenges that many retailers face is that the greatest product is often not the best selling product. Likewise, what sells the best is not the product they would have preferred to push but it sells so that’s where their money goes. As a retailer, one of the biggest heartbreaks is a wonderful brand that you can’t get people to buy at full retail.

Having said that, I think that it’s very difficult for a DE to be a good retailer and to provide full retail support to their stores. If you really know what you’re doing with retail support, then you’ll be a great retailer and if you’re a great retailer, well then you’re competing with your store accounts. It’s a difficult line to tread and it’s a safer thing to test once you’re an established brand with the recognition and sales (and retail accounts that just can’t give up your line) rather than someone just starting out, when you have tons of competition and aren’t even established yet.

There are ways to build a system that can accomplish both goals but it’s a very tough juggle for many DEs who have so many other tasks to manage. Having said that, I feel that I need to be fair because there are definite advantages to being a DE/Retailer, but that will come in another post.

13 comments

Miracle, you make some great points that I think are hard facts to face for many of us. As DE’s I think many of us got into this business because we think we have unique ideas, or that we’ve gotten so much positive response off the street, we’re convinced the world is DYING for our work. I’ve always been really two-faced about this: part of me believes it, and part of me thinks it’s embarrassing. In my own, limited, selling experience, I get the fastest sales with items I think of as very derivative and kinda boring. My interesting stuff is too..well, interesting. This has been a little hard to accept.

I also think my ready-to-wear stuff is overpriced because I can’t stomach underpaying myself for the work I put into things, and I haven’t made the committment to hiring out the work appropriately (although I agree that if I were SURE that a ready-to-wear line is what I want, I should hire professional help). Luckily, I have stuff in a store that isn’t really a store so they don’t care how fast stuff sells.

But that’s why I focus on custom clothing, because it has the added value of interpreting a clients very specific inner desires, and that’s worth the extra expense so they don’t have to wade through the glut of design options out there to find one that works for them. I TELL them: “this will work for you,” and they are relieved. Which is to say: I agree. retailers have PLENTY of stuff to choose from.

So tell me, what are the “AND they..” added features that most encourage YOU to buy?

keep telling us the hard things we don’t want to hear, Miracle, and help us become better entreprenuers.

Everyone bitches back and forth, retailer to manufacturer etc…But the most prevalent complaint and annoyance most brands have with retailers is that getting paid within their set terms is usually an adventure. Yes the are a FEW retailers that honor their commitments, but why do you think alot of brands are forced to retail their own stuff ? Pretty simple when you think of it.As long as the brands match retail prices, what’s the problem ? I’m sure a large thick book can be written about “adventures in getting paid by retailers”. Tom

As a total novice to the DE world, looking to get educated and move on to production of my ideas, I read your blog with great interest every day. I have also read your book which has been invaluable to me. My comment today is about an experience I had last week. I called a small fabric store that I had visited last winter in Arizona. During that visit I had noted that they carried a beautiful Irish Linen and I now want to purchase that type of fabric for my line of clothes. I spoke with the owner and explained who I was and that I admired the quality of the linen she carrys and would like to manufacture it into clothing. I asked her who her source is. She wouln’t tell me. I was dissapointed about that because in no way am I a competitor of hers as we are not in the same business and she is several states away. I thanked her for her time. Meanwhile, I need a source for really nice Irish linen that will sell to a small start-up designer/manufacturer. Any ideas?

Tom: I totally agree with you. The new “wave” on small design house online stores started for the most part as supplemental cash flow caused often by lagging accounts receivables. There are too many small boutiques who are RE “retail entrepreneurs” and are just as undercapitalized as the designers.. so the financial problem is basically the SAME on both sides. WE have to front out $$ to our suppliers and then THEY want to get “terms” right away. I do not do terms until I have dealt with a store for over a year, with numerous reorders…and I have a credit card on file. I accept Visa and MC (easy for startups to get these days) and the buyers can get a net30 off the charge card. I do not do COD (I can write a book on those games too). another “and they…” that I do (and this can be tricky..and I only do it with smaller accessory items).. I offer a 100% trade out policy. If something doesn’t work for their store, I will trade it out- NOT give a $$ refund, but cycle in new merchandise at same value. So the buyer tends to “go deep” with my accessories and try a few higher end items until they are comfortable with the relationship..then they know what works for their customer- I am PAID.. and we both are happy. Pat: Here are a few sourcing tips: 1. Read the end of the bolts are the store and use the internet to track down the source. 2. You can attend the same trade shows as they do. The Home Sewing Association holds one in Las Vegas that is geared towards OTC (over the counter/bolts/ retailers) and designers are welcome: http://www.sewing.org Minimums are fairly low at these shows. I do not know where you are in the country, but reps often band together and do a few textile shows in various cities (we have a small one in Phoenix). 3.Infomathttp://www.infomat.com 4…and this is has been a real goodie for me: a book called “The Small Company’s Guide to Wholesale Fabrics” by Fashiondexhttp://www.fashiondex.com They have a book that I have found is very up to date and valuable (many of these types of sourcing books are not up to date, but I found a lot of what I needed in this book)It is focused on fabric sources who deal with low or no minimums ..and it tells you what the minimums are in this book, so you do not have to call the ones you do can’t handle. 5. Many fabric companies also have websites. Good luck! It’s out there.. you’ll find it.

I’d like to speak up for a moment…as a former retailer. I didn’t sell clothing, and I didn’t design any of my own stuff. Nevertheless, there are a lot of valid points here.

First, retailers quickly learn that everything on the shelves is “eating”. It can’t sit there forever costing rent, utilities, labor (even if just being dusted everyday, that time adds up to $$). The stuff has to sell, and it has to at least make back the money it has cost -the inital price, the shipping cost, and the space & other stuff it “ate” while in the store. And that doesn’t even account for shrinkage -items damaged or stolen.

As was stated, there’s never a shortage of stuff to sell. Ever. There are enough venders hawking products to fill a warehouse everyday -good, quality, nice stuff that anyone would be proud to own. But the retailer has to pick and choose according to what his (or her) customers will buy, and NOT according to what he or she likes.

I quickly discovered that I would sell a cheap, poor quality item to the same customer three times before that person would step up & buy one that cost more but would last longer. I learned “fad” items will sell faster and for better prices than well-made less trendy items -everytime. And no sale was guaranteed until after the return period. People will buy it, take it home, use it, clean it…and return it. And then, even if the item was resaleable, I was often stuck with an “orphan”. That is, having one of something on a shelf when all the others left a week ago….

Someone asked what is the “And” that will make a retailer buy. For me they were:

Guaranteed sales -if the item doesn’t sell a particular percentage within a set time, it will be replaced -for free- with something else.

A guarantee to repair or replace an item that is damaged. If they’ll do that without the customer having to send it directly to them -or worse, to someplace I’ve never heard of- so much the better.

Liberal payment terms and small initial minimum orders. For a retailer, paying for a truckload of something unproven, can be the kiss of death. Once you’ve bought it, you’re stuck with it. Throwing it away is a total loss. And once you begin marking stuff down to get rid of it, you’ve created a monster -people will wait for the sales, and won’t buy at full retail unless they’re forced to.

Letting me know ahead of time if they’re out of something. There’s nothing worse than running an ad -which has to be ready in November, for a product that’s supposed to arrive in December, then not receiving the merchandise on time. Not only does it cost me the price of the ad, but it makes my customers feel like they’ve been baited. And, if that’s not enough, I have ‘holes’ in my shelves where that product is supposed to be.

Last thing – I HATED manufacturers who sold directly to the customer. I dropped some of my biggest and best products when they started selling on the internet to anyone who happened to click.

First, they usually offered a better discount I ever could -or even sold directly at my cost- leading my customers to feel I was overcharging.

Second, they knew much further in advance when things were going to be available, or when a particular item was running low. This guaranteed their customers were never stuck waiting -and I suspect they were filling the individual orders first, and then allocating the leftovers to the stores. So NO store would or could have the same variety of products that anyone else had. At best, a customer looking for a particular item might have to visit two or three stores to find it. Third, they simply stopped supporting the stores the way they had before. They no longer cared if they sold a dozen items to Jones, because they would eventually sell two dozen to individuals, and they could afford to wait. They didn’t have the same pressure to always have new products or to keep the inventory moving.

I’ve found that retailers are extremely busy people and have budgets that limit experimental purchasing. They love the products, but that isn’t always enough. Star-up DE’s have a more difficult time persuading retailers to make the first purchase because they don’t have any sell-through statistics yet. So it’s a slow start building up a reputation brick by brick.

I’ve seen that some stores want to be able to sell back unsold product. Is this something that is very common? And is this one of the AND THEY’s that you were talking about? It seems to me that it might be doable for some DE’s, but not for others. What does one do with product that has been bought back after being on display? Can you resell it? Or is it lost?

I’ve seen that some stores want to be able to sell back unsold product. Is this something that is very common? And is this one of the AND THEY’s that you were talking about? It seems to me that it might be doable for some DE’s, but not for others. What does one do with product that has been bought back after being on display? Can you resell it? Or is it lost?

Hmmm…as a retailer, I think I only worked with two companies that would “buy back” unsold items. And both were companies with proven sellers. I think that’s a great example of “And they…”.

With exchanging merchandise, it often worked like this: I’d buy three cases of product; a case of whatsits, a case of widgets, and a case of gizmos. Often, a month later I had sold all of the widgets, and people were asking for more. But maybe I only sold two or three widgets, and NO gizmos. With merchandise exchange, I’d box up all of the unsold gizmos, and half of the widgets. And I’d get another case of widgets, and sometimes half of something else if they’d break a case -some companies won’t, and that’s understandable. If they wouldn’t break a case, I’d take a credit for the extra widgets. With buyback, it would be much the same.

Usually, the items are resalable. In fact, I think most companies have pretty strict terms for what they’ll take back -nothing shopworn, no stickers, no writing, etc. They can simply acknowlege their products didn’t work for me, and resell it to someone else. And I can try again if they come up with something new or if my demographics change.

BTW, sorry if the format of this post is funky. Reply forms kill my browser, so I have to cut-n-paste.

Star-up DE’s have a more difficult time persuading retailers to make the first purchase because they don’t have any sell-through statistics yet. So it’s a slow start building up a reputation brick by brick.

I’ve seen that some stores want to be able to sell back unsold product. Is this something that is very common? And is this one of the AND THEY’s that you were talking about? It seems to me that it might be doable for some DE’s, but not for others. What does one do with product that has been bought back after being on display? Can you resell it? Or is it lost?

I’m trying to respond to some comments, and some are becoming so long, they will be separate blog entries.

But: it is only really feasible to take back merchandise if you have a longer selling cycle to your line (thus it will still be saleable if you take it back) or have the distribution channels to rid yourself of the inventory you buy back or swap out. Or you just make a lot of money and can afford to.

I have normally only seen swap outs from DEs that sell to department stores (and thus allow that) or DEs very eager for business. In other words, it’s not incredibly common.

There is a fine line between selling to retailers and financing a retailer’s inventory. And if you’re buying back or having such extended terms that you get paid after the selling season is over, you’ve really just gotten hoodwinked into consignment.

I have heard DEs who could not get paid by stores and the store said, well okay, come get your stuff. They had to go in and pick up their shopworn, high priced items. They were bullied into “consignment” and the store got away with it because the DE was new and inexperienced.

“Paying stores to carry your line” is a good way to end up not making any money. If your line is good, and truly good (in the eyes of retailers and not you and your friends) and you’re reliable, then you should not have a problem getting some level of retail distribution.

Now one way to get sell through stats as a DE is to do trunk shows, small fashion related sales events or other venues where you can talk directly to your consumers and get feedback. It truly is a good way to test market your line and get your consumer feedback and sales data. But you must be in the right venue because I see too many DEs going to the wrong market to sell and getting useless feedback. If you are truly confident and have a good line, I think a few retailers would take you up on your offer to have a trunk show so they can find out firsthand how well your brand sells.

Since I’ve mostly been writing about the negative aspects of being a DE and a retailer (here’s my latest post), I need to put emphasis on the other side -the advantages of selling retail. First, you can show your entire…

Earlier, “Miracle” said that average gross profits for retailers was 50-54%. If a merchant buys a product at wholesale and the cost is $40.00, retails it at $80.00, forgive my ignorance, but is that not 100% gross ? Tears of sorrow for the 70-80% off sale guys . Are they still not able to recoup some of the intial layout ? As for ordering test merchandise, I’m sure nobody has a gun put to their head when cutting a PO # for new product. My experience is that many retailers find alot of excuses for their own stupid mistakes, and blame everything on the weather to George Bush . Business today on any level, or any field , is changing. And retail is certainly a big part of that change. Think about it. Tom

Earlier, “Miracle” said that average gross profits for retailers was 50-54%. If a merchant buys a product at wholesale and the cost is $40.00, retails it at $80.00, forgive my ignorance, but is that not 100% gross ?

It’s a 100% MARKUP, but a 50% gross profit margin. A 100% gross profit margin would be selling something you got for free.

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